The Future of History

Can Liberal
Democracy Survive the Decline of the Middle Class?

Francis Fukuyama

FRANCIS FUKUYAMA is a Senior Fellow at the
Center on Democracy, Development, and the Rule of Law at
Stanford University and the author, most recently, of The
Origins of Political Order: From Prehuman Times to the
French Revolution.

Something strange is going on in the world
today. The global financial crisis that began in 2008 and
the ongoing crisis of the euro are both products of the
model of lightly regulated financial capitalism that emerged
over the past three decades. Yet despite widespread anger at
Wall Street bailouts, there has been no great upsurge of
left-wing American populism in response. It is conceivable
that the Occupy Wall Street movement will gain traction, but
the most dynamic recent populist movement to date has been
the right-wing Tea Party, whose main target is the
regulatory state that seeks to protect ordinary people from
financial speculators. Something similar is true in Europe
as well, where the left is anemic and right-wing populist
parties are on the move.

There are several reasons for this lack of
left-wing mobilization, but chief among them is a failure in
the realm of ideas. For the past generation, the ideological
high ground on economic issues has been held by a
libertarian right. The left has not been able to make a
plausible case for an agenda other than a return to an
unaffordable form of old-fashioned social democracy. This
absence of a plausible progressive counter­narrative is
unhealthy, because competition is good for intellectual
­debate just as it is for economic activity. And serious
intellectual debate is urgently needed, since the current
form of globalized capitalism is eroding the middle-class
social base on which liberal democracy rests.

THE DEMOCRATIC WAVE

Social forces and conditions do not simply
“determine” ideologies, as Karl Marx once maintained, but
ideas do not become powerful unless they speak to the
concerns of large numbers of ordinary people. Liberal
democracy is the default ideology around much of the world
today in part because it responds to and is facilitated by
certain socioeconomic structures. Changes in those
structures may have ideological consequences, just as
ideological changes may have socioeconomic consequences.

Almost all the powerful ideas that shaped
human societies up until the past 300 years were religious
in nature, with the important exception of Confucianism in
China. The first major secular ideology to have a lasting
worldwide effect was liberalism, a doctrine associated with
the rise of first a commercial and then an industrial middle
class in certain parts of Europe in the seventeenth century.
(By “middle class,” I mean people who are neither at the top
nor at the bottom of their societies in terms of income, who
have received at least a secondary education, and who own
either real property, durable goods, or their own
businesses.)

As enunciated by classic thinkers such as
Locke, Montesquieu, and Mill, liberalism holds that the
legitimacy of state authority derives from the state’s
ability to protect the individual rights of its citizens and
that state power needs to be limited by the adherence to
law. One of the fundamental rights to be protected is that
of private property; England’s Glorious Revolution of
1688–89 was critical to the development of modern liberalism
because it first established the constitutional principle
that the state could not legitimately tax its citizens
without their consent.

At first, liberalism did not necessarily
imply democracy. The Whigs who supported the constitutional
settlement of 1689 tended to be the wealthiest property
owners in England; the parliament of that period represented
less than ten percent of the whole population. Many classic
liberals, including Mill, were highly skeptical of the
virtues of democracy: they believed that responsible
political participation required education and a stake in
society -- that is, property ownership. Up through the end
of the nineteenth century, the franchise was limited by
property and educational requirements in virtually all parts
of Europe. Andrew Jackson’s election as U.S. president in
1828 and his subsequent abolition of property requirements
for voting, at least for white males, thus marked an
important early victory for a more robust democratic
principle.

In Europe, the exclusion of the vast
majority of the population from political power and the rise
of an industrial working class paved the way for Marxism.
The Communist Manifesto was published in 1848, the
same year that revolutions spread to all the major European
countries save the United Kingdom. And so began a century of
competition for the leadership of the democratic movement
between communists, who were willing to jettison procedural
democracy (multiparty elections) in favor of what they
believed was substantive democracy (economic
redistribution), and liberal democrats, who believed in
expanding political participation while maintaining a rule
of law protecting individual rights, including property
rights.

At stake was the allegiance of the new
industrial working class. Early Marxists believed they would
win by sheer force of numbers: as the franchise was expanded
in the late nineteenth century, parties such as the United
Kingdom’s Labour and Germany’s Social Democrats grew by
leaps and bounds and threatened the hegemony of both
conservatives and traditional liberals. The rise of the
working class was fiercely resisted, often by nondemocratic
means; the communists and many socialists, in turn,
abandoned formal democracy in favor of a direct seizure of
power.

Throughout the first half of the twentieth
century, there was a strong consensus on the progressive
left that some form of socialism -- government control of
the commanding heights of the economy in order to ensure an
egalitarian distribution of wealth -- was unavoidable for
all advanced countries. Even a conservative economist such
as Joseph Schumpeter could write in his 1942 book,
Capitalism, Socialism, and Democracy, that socialism
would emerge victorious because capitalist society was
culturally self-undermining. Socialism was believed to
represent the will and interests of the vast majority of
people in modern societies.

Yet even as the great ideological
conflicts of the twentieth century played themselves out on
a political and military level, critical changes were
happening on a social level that undermined the Marxist
scenario. First, the real living standards of the industrial
working class kept rising, to the point where many workers
or their children were able to join the middle class.
Second, the relative size of the working class stopped
growing and actually began to decline, particularly in the
second half of the twentieth century, when services began to
displace manufacturing in what were labeled “postindustrial”
economies. Finally, a new group of poor or disadvantaged
people emerged below the industrial working class -- a
heterogeneous mixture of racial and ethnic minorities,
recent immigrants, and socially excluded groups, such as
women, gays, and the disabled. As a result of these changes,
in most industrialized societies, the old working class has
become just another domestic interest group, one using the
political power of trade unions to protect the hard-won
gains of an earlier era.

Economic class, moreover, turned out not
to be a great banner under which to mobilize populations in
advanced industrial countries for political action. The
Second International got a rude wake-up call in 1914, when
the working classes of Europe abandoned calls for class
warfare and lined up behind conservative leaders preaching
nationalist slogans, a pattern that persists to the present
day. Many Marxists tried to explain this, according to the
scholar Ernest Gellner, by what he dubbed the “wrong address
theory”:

Just as extreme Shi’ite Muslims hold
that Archangel Gabriel made a mistake, delivering the
Message to Mohamed when it was intended for Ali, so
Marxists basically like to think that the spirit of
history or human consciousness made a terrible boob. The
awakening message was intended for classes, but by some
terrible postal error was delivered to nations.

Gellner went on to argue that religion
serves a function similar to nationalism in the contemporary
Middle East: it mobilizes people effectively because it has
a spiritual and emotional content that class consciousness
does not. Just as European nationalism was driven by the
shift of Europeans from the countryside to cities in the
late nineteenth century, so, too, Islamism is a reaction to
the urbanization and displacement taking place in
contemporary Middle Eastern societies. Marx’s letter will
never be delivered to the address marked “class.”

Marx believed that the middle class, or at
least the capital-owning slice of it that he called the
bourgeoisie, would always remain a small and privileged
minority in modern societies. What ­happened instead was
that the bourgeoisie and the middle class more generally
ended up constituting the vast majority of the populations
of most advanced countries, posing problems for socialism.
From the days of Aristotle, thinkers have believed that
stable democracy rests on a broad middle class and that
societies with extremes of wealth and poverty are
susceptible either to oligarchic domination or populist
revolution. When much of the developed world succeeded in
creating middle-class societies, the appeal of Marxism
vanished. The only places where leftist radicalism persists
as a powerful force are in highly unequal areas of the
world, such as parts of Latin America, Nepal, and the
impoverished regions of eastern India.

What the political scientist Samuel
Huntington labeled the “third wave” of global
democratization, which began in southern Europe in the 1970s
and culminated in the fall of communism in Eastern Europe in
1989, increased the number of electoral democracies around
the world from around 45 in 1970 to more than 120 by the
late 1990s. Economic growth has led to the emergence of new
middle classes in countries such as Brazil, India,
Indonesia, South Africa, and Turkey. As the economist Moisés
Naím has pointed out, these middle classes are relatively
well educated, own property, and are technologically
connected to the outside world. They are demanding of their
governments and mobilize easily as a result of their access
to technology. It should not be surprising that the chief
instigators of the Arab Spring uprisings were well-educated
Tunisians and Egyptians whose expectations for jobs and
political participation were stymied by the dictatorships
under which they lived.

Middle-class people do not necessarily
support democracy in principle: like everyone else, they are
self-interested actors who want to protect their property
and position. In countries such as China and Thailand, many
middle-class people feel threatened by the redistributive
demands of the poor and hence have lined up in support of
authoritarian governments that protect their class
interests. Nor is it the case that democracies necessarily
meet the expectations of their own middle classes, and when
they do not, the middle classes can become restive.

THE LEAST BAD ALTERNATIVE?

There is today a broad global consensus
about the legitimacy, at least in principle, of liberal
democracy. In the words of the economist Amartya Sen, “While
democracy is not yet universally practiced, nor indeed
uniformly accepted, in the general climate of world opinion,
democratic governance has now achieved the status of being
taken to be generally right.” It is most broadly accepted in
countries that have reached a level of material prosperity
sufficient to allow a majority of their citizens to think of
themselves as middle class, which is why there tends to be a
correlation between high levels of ­development and stable
democracy.

Some societies, such as Iran and Saudi
Arabia, reject liberal democracy in favor of a form of
Islamic theocracy. Yet these regimes are developmental dead
ends, kept alive only because they sit atop vast pools of
oil. There was at one time a large Arab exception to the
third wave, but the Arab Spring has shown that Arab publics
can be mobilized against dictatorship just as readily as
those in Eastern Europe and Latin America were. This does
not of course mean that the path to a well-functioning
democracy will be easy or straightforward in Tunisia, Egypt,
or Libya, but it does suggest that the desire for ­political
freedom and participation is not a cultural peculiarity of
Europeans and Americans.

The single most serious challenge to
liberal democracy in the world today comes from China, which
has combined authoritarian government with a partially
marketized economy. China is heir to a long and proud
tradition of high-quality bureaucratic government, one that
stretches back over two millennia. Its leaders have managed
a hugely complex transition from a centralized, Soviet-style
planned economy to a dynamic open one and have done so with
remarkable competence -- more competence, frankly, than U.S.
leaders have shown in the management of their own
macroeconomic policy recently. Many people currently admire
the Chinese system not just for its economic record but also
because it can make large, complex decisions quickly,
compared with the agonizing policy paralysis that has struck
both the United States and Europe in the past few years.
Especially since the recent financial crisis, the Chinese
themselves have begun touting the “China model” as an
alternative to liberal democracy.

This model is unlikely to ever become a
serious alternative to liberal democracy in regions outside
East Asia, however. In the first place, the model is
culturally specific: the Chinese government is built around
a long tradition of meritocratic recruitment, civil service
examinations, a high emphasis on education, and deference to
technocratic authority. Few developing countries can hope to
emulate this model; those that have, such as Singapore and
South Korea (at least in an earlier period), were already
within the Chinese cultural zone. The Chinese themselves are
skeptical about whether their model can be exported; the
so-called Beijing consensus is a Western invention, not a
Chinese one.

It is also unclear whether the model can
be sustained. Neither export-driven growth nor the top-down
approach to decision-making will continue to yield good
results forever. The fact that the Chinese government would
not permit open discussion of the disastrous high-speed rail
accident last summer and could not bring the Railway
Ministry responsible for it to heel suggests that there are
other time bombs hidden behind the façade of efficient
decision-making.

Finally, China faces a great moral
vulnerability down the road. The Chinese government does not
force its officials to respect the basic dignity of its
citizens. Every week, there are new protests about land
seizures, environmental violations, or gross corruption on
the part of some official. While the country is growing
rapidly, these abuses can be swept under the carpet. But
rapid growth will not continue forever, and the government
will have to pay a price in pent-up anger. The regime no
longer has any guiding ideal around which it is organized;
it is run by a Communist Party supposedly committed to
equality that presides over a society marked by dramatic and
growing inequality.

So the stability of the Chinese system can
in no way be taken for granted. The Chinese government
argues that its ­citizens are culturally different and will
always prefer benevolent, growth-promoting dictatorship to a
messy democracy that threatens social stability. But it is
unlikely that a spreading middle class will behave all that
differently in China from the way it has behaved in other
parts of the world. Other authoritarian regimes may be
trying to emulate China’s success, but there is little
chance that much of the world will look like today’s China
50 years down the road.

DEMOCRACY’S FUTURE

There is a broad correlation among
economic growth, social change, and the hegemony of liberal
democratic ideology in the world today. And at the moment,
no plausible rival ideology looms. But some very troubling
economic and social trends, if they continue, will both
threaten the stability of contemporary liberal democracies
and dethrone democratic ideology as it is now understood.

The sociologist Barrington Moore once
flatly asserted, “No bourgeois, no democracy.” The Marxists
didn’t get their communist utopia because mature capitalism
generated middle-class societies, not working-class ones.
But what if the further development of technology and
globalization undermines the middle class and makes it
impossible for more than a minority of citizens in an
advanced society to achieve middle-class status?

There are already abundant signs that such
a phase of development has begun. Median incomes in the
United States have been stagnating in real terms since the
1970s. The economic impact of this stagnation has been
softened to some extent by the fact that most U.S.
households have shifted to two income earners in the past
generation. Moreover, as the economist Raghuram Rajan has
persuasively argued, since Americans are reluctant to engage
in straightforward redistribution, the United States has
instead attempted a highly dangerous and inefficient form of
redistribution over the past generation by subsidizing
mortgages for low-income households. This trend, facilitated
by a flood of liquidity pouring in from China and other
countries, gave many ordinary Americans the illusion that
their standards of living were rising steadily during the
past decade. In this respect, the bursting of the housing
bubble in 2008–9 was nothing more than a cruel reversion to
the mean. Americans may today benefit from cheap cell
phones, inexpensive clothing, and Facebook, but they
increasingly cannot afford their own homes, or health
insurance, or comfortable pensions when they retire.

A more troubling phenomenon, identified by
the venture capitalist Peter Thiel and the economist Tyler
Cowen, is that the benefits of the most recent waves of
technological innovation have accrued disproportionately to
the most talented and well-educated members of society. This
phenomenon helped cause the massive growth of inequality in
the United States over the past generation. In 1974, the top
one percent of families took home nine percent of GDP; by
2007, that share had increased to 23.5 percent.

Trade and tax policies may have
accelerated this trend, but the real villain here is
technology. In earlier phases of industrialization -- the
ages of textiles, coal, steel, and the internal combustion
engine -- the benefits of technological changes almost
always flowed down in significant ways to the rest of
society in terms of employment. But this is not a law of
nature. We are today living in what the scholar Shoshana
Zuboff has labeled “the age of the smart machine,” in which
technology is increasingly able to substitute for more and
higher human functions. Every great advance for Silicon
Valley likely means a loss of low-skill jobs elsewhere in
the economy, a trend that is unlikely to end anytime soon.

Inequality has always existed, as a result
of natural differences in talent and character. But today’s
technological world vastly magnifies those differences. In a
nineteenth-century agrarian society, people with strong math
skills did not have that many opportunities to capitalize on
their talent. Today, they can become financial wizards or
software engineers and take home ever-larger proportions of
the national wealth.

The other factor undermining middle-class
incomes in developed countries is globalization. With the
lowering of transportation and communications costs and the
entry into the global work force of hundreds of millions of
new workers in developing countries, the kind of work done
by the old middle class in the developed world can now be
performed much more cheaply elsewhere. Under an economic
model that prioritizes the maximization of aggregate income,
it is inevitable that jobs will be outsourced.

Smarter ideas and policies could have
contained the damage. Germany has succeeded in protecting a
significant part of its manufacturing base and industrial
labor force even as its companies have remained globally
competitive. The United States and the United Kingdom, on
the other hand, happily embraced the transition to the
postindustrial service economy. Free trade became less a
theory than an ideology: when members of the U.S. Congress
tried to retaliate with trade sanctions against China for
keeping its currency undervalued, they were indignantly
charged with protectionism, as if the playing field were
already level. There was a lot of happy talk about the
wonders of the knowledge economy, and how dirty, dangerous
manufacturing jobs would inevitably be replaced by highly
educated workers doing creative and interesting things. This
was a gauzy veil placed over the hard facts of
deindustrial­ization. It overlooked the fact that the
benefits of the new order accrued disproportionately to a
very small number of people in finance and high technology,
interests that dominated the media and the general political
conversation.

THE ABSENT LEFT

One of the most puzzling features of the
world in the aftermath of the financial crisis is that so
far, populism has taken primarily a right-wing form, not a
left-wing one.

In the United States, for example,
although the Tea Party is anti-elitist in its rhetoric, its
members vote for conservative politicians who serve the
interests of precisely those financiers and corporate elites
they claim to despise. There are many explanations for this
phenomenon. They include a deeply embedded belief in
equality of opportunity rather than equality of outcome and
the fact that cultural issues, such as abortion and gun
rights, crosscut economic ones.

But the deeper reason a broad-based
populist left has failed to materialize is an intellectual
one. It has been several decades since anyone on the left
has been able to articulate, first, a coherent analysis of
what happens to the structure of advanced societies as they
undergo economic change and, second, a realistic agenda that
has any hope of protecting a middle-class society.

The main trends in left-wing thought in
the last two generations have been, frankly, disastrous as
either conceptual frameworks or tools for mobilization.
Marxism died many years ago, and the few old believers still
around are ready for nursing homes. The academic left
replaced it with postmodernism, multiculturalism, feminism,
critical theory, and a host of other fragmented intellectual
trends that are more cultural than economic in focus.
Postmodernism begins with a denial of the possibility of any
master narrative of history or society, undercutting its own
authority as a voice for the majority of citizens who feel
betrayed by their elites. Multiculturalism validates the
victimhood of virtually every out-group. It is impossible to
generate a mass progressive movement on the basis of such a
motley coalition: most of the working- and
lower-middle-class citizens victimized by the system are
culturally conservative and would be embarrassed to be seen
in the presence of allies like this.

Whatever the theoretical justifications
underlying the left’s agenda, its biggest problem is a lack
of credibility. Over the past two generations, the
mainstream left has followed a social democratic program
that centers on the state provision of a variety of
services, such as pensions, health care, and education. That
model is now exhausted: welfare states have become big,
bureaucratic, and inflexible; they are often captured by the
very organizations that administer them, through
public-sector unions; and, most important, they are fiscally
unsustainable given the aging of populations virtually
everywhere in the developed world. Thus, when existing
social democratic parties come to power, they no longer
aspire to be more than custodians of a welfare state that
was created decades ago; none has a new, exciting agenda
around which to rally the masses.

AN IDEOLOGY OF THE FUTURE

Imagine, for a moment, an obscure
scribbler today in a garret somewhere trying to outline an
ideology of the future that could provide a realistic path
toward a world with healthy middle-class societies and
robust democracies. What would that ideology look like?

It would have to have at least two
components, political and economic. Politically, the new
ideology would need to reassert the supremacy of democratic
politics over economics and legitimate anew government as an
expression of the public interest. But the agenda it put
forward to protect middle-class life could not simply rely
on the existing mechanisms of the welfare state. The
ideology would need to somehow redesign the public sector,
freeing it from its dependence on existing stakeholders and
using new, technology-empowered approaches to delivering
services. It would have to argue forthrightly for more
redistribution and present a realistic route to ending
interest groups’ domination of politics.

Economically, the ideology could not begin
with a denunciation of capitalism as such, as if
old-fashioned socialism were still a viable alternative. It
is more the variety of capitalism that is at stake and the
degree to which governments should help societies adjust to
change. Globalization need be seen not as an inexorable fact
of life but rather as a challenge and an opportunity that
must be carefully controlled politically. The new ideology
would not see markets as an end in themselves; instead, it
would value global trade and investment to the extent that
they contributed to a flourishing middle class, not just to
greater aggregate national wealth.

It is not possible to get to that point,
however, without providing a serious and sustained critique
of much of the edifice of modern neoclassical economics,
beginning with fundamental assumptions such as the
sovereignty of individual preferences and that aggregate
income is an accurate measure of national well-being. This
critique would have to note that people’s incomes do not
necessarily represent their true contributions to society.
It would have to go further, however, and recognize that
even if labor markets were efficient, the natural
distribution of talents is not necessarily fair and that
individuals are not sovereign entities but beings heavily
shaped by their surrounding societies.

Most of these ideas have been around in
bits and pieces for some time; the scribbler would have to
put them into a coherent package. He or she would also have
to avoid the “wrong address” problem. The critique of
globalization, that is, would have to be tied to nationalism
as a strategy for mobilization in a way that defined
national interest in a more sophisticated way than, for
example, the “Buy American” campaigns of unions in the
United States. The product would be a synthesis of ideas
from both the left and the right, detached from the agenda
of the marginalized groups that constitute the existing
progressive movement. The ideology would be populist; the
message would begin with a critique of the elites that
allowed the benefit of the many to be sacrificed to that of
the few and a critique of the money politics, especially in
Washington, that overwhelmingly benefits the wealthy.

The dangers inherent in such a movement
are obvious: a pullback by the United States, in particular,
from its advocacy of a more open global system could set off
protectionist responses elsewhere. In many respects, the
Reagan-Thatcher revolution succeeded just as its proponents
hoped, bringing about an increasingly competitive,
globalized, friction-free world. Along the way, it generated
tremendous wealth and created rising middle classes all over
the developing world, and the spread of democracy in their
wake. It is possible that the developed world is on the cusp
of a series of technological breakthroughs that will not
only increase productivity but also provide meaningful
employment to large numbers of middle-class people.

But that is more a matter of faith than a
reflection of the empirical reality of the last 30 years,
which points in the opposite direction. Indeed, there are a
lot of reasons to think that inequality will continue to
worsen. The current concentration of wealth in the United
States has already become self-reinforcing: as the economist
Simon Johnson has argued, the financial sector has used its
lobbying clout to avoid more onerous forms of regulation.
Schools for the well-off are better than ever; those for
everyone else continue to deteriorate. Elites in all
societies use their superior access to the political system
to protect their interests, absent a countervailing
democratic mobilization to rectify the situation. American
elites are no exception to the rule.

That mobilization will not happen,
however, as long as the middle classes of the developed
world remain enthralled by the narrative of the past
generation: that their interests will be best served by
ever-freer markets and smaller states. The alternative
narrative is out there, waiting to be born.